Over the past two weeks, one-month and three-month GBP/USD FX swaps have moved from –2 and –5 to +2 and +5 respectively, equating, by my reckoning, to about 35 basis points of dollar tightening in the interest rate spread. But it took a note on Tuesday from Laurence Mutkin and Elaine Lin of Morgan Stanley to put the move in some perspective.
They point out that that the ECB’s “full-allocation USD tenders provide an unlimited amount of USD to banks at an implied OIS+100bp”. However, with that implied level still far higher than Libor and even the FX basis, the tender has so far “attracted a negligible $1 billion of interest from the market” – a different situation to 2008 when it was “accepted with enthusiasm”. Incidentally, on Wednesday The Wall Street Journal cited the old journalistic staple “people familiar with the matter” as saying that “Spain's Banco Bilbao Vizcaya Argentaria, or BBVA, is reportedly unable to renew its $1 billion of short-term funding in the US.”
Morgan Stanley also notes the widening of forward Libor/OIS spreads compared with spot spreads and that the gap between spot and forward spreads “is now much higher than at any time in the past, including the depths of the liquidity crisis”.